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by Daniel Gloade on June 3, 2014

The article attached here  is a demonstration of a problem that has a significant impact on our economy, a problem with no easy solutions.

Kitchener-Waterloo, like every other area, is on the horns of a dilemma.  It is among very stiff competition to attract job-creating businesses to its jurisdiction.  Many regions offer tax breaks, low interest loans and fee-waivers to attract businesses.  In this case, my personal advantage is that I will have 50 more potential paying customers for my business.

The problem is that other taxpayers pay the costs for the extension municipal services for this business.  In my case, I pay increased rent to cover the increased property taxes used to cover the costs of the extension of municipal services to the new business.

If one of these new workers becomes my client, I most certainly recoup the small increase in my rent.  In addition, the price for the product the factory produces will be lower.  I have savings if I buy that good or service.  If neither takes place then I will suffer a small loss.

When costs of producing a good or service is not matched with the price of the good or service, then there is price distortion.  I cannot make informed choices.  My freedom of choice is greatly restricted as well.  In this case, my only choice is whether I want to vote for a different municipal government.  If the true cost of the good or service is matched with the price, however, then I can make choices that are more individual as a consumer.

Consumers making informed choices about their goods and services help improve efficiency.   The only solution, to my mind, is legislation banning these times of deals that cover a very large area of land or a large industry.

This seems utopian.  I lived in a time, however, when free trade with the United States was a scary experiment in macroeconomics.  Now free trade is the new normal.  Perhaps governments that have tax policies that charge the consumers of government goods and services with the true costs of those goods and services will be the next macroeconomic frontier.

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